The Most Powerful Force

Einstein once said that compound interest is one of the most powerful forces in the universe.

In finance, compounding looks like this:

Assuming an annual return of 10%, and an initial investment of $1000, if all returns are preserved to grow with the initial $1000, this is what year-end totals would look like:

Year 1: $1,100
Year 2: $1,210
Year 3: $1,331
Year 4: $1,464.10
Year 5: $1,610.51
Year 6: $1,771.56
Year 7: $1,948.72
Year 8: $2,143.59
Year 9: $2,357.95
Year 10: $2,593.74
Year 15: $4,177.25
Year 20: $6,727.50
Year 30: $17,449.40
Year 50: $117,390.85

Assuming the same 10% annual return with an initial investment of $10,000, 50 years of compounded returns would have $10,000 grow to $1,173,908.53.

Compounding allows us to experience exponential returns in many areas of life. The idea is that over the long run, our everyday choices will take us much higher or lower than the human mind is naturally inclined to imagine.

That's right - we can compound upward or downward.

In relationships, if we consistently show thoughtful care, trustworthiness, and humility, we naturally create bonds of friendship, respect, and love that there simply aren't any shortcuts to building. If, over time, through our actions or lackthereof, we show that we don't really care about those around us, seeking primarily to maximize our own pleasure, we will arrive at a point in life where there aren't too many people who genuinely care about us.

With our physical health, if we consistently make nutrient-dense food choices, take care of our joints, and get enough rest, we can expect to be mobile and able to enjoy a wide variety of activities deep into our senior years. If we mostly neglect our physical health, we can expect to struggle to enjoy our later years.

I share this powerful idea of compounding returns with our boys by encouraging them to regularly seek to increase their value.

At any point in time, our value is what we are left with if the forces that be were to strip us of our belongings, achievements, and assets.

Put another way, our value is what lies within us - our awareness, thoughtfulness, humility, trustworthiness, capacity to admit when we make mistakes, ability to offer sincere apologies without excuses, knowledge, experience, skills, work ethic, and compassion for others, to name several key things.

If we were to strip Roger Federer of his equipment and even the tennis shoes off his feet, how quickly could he return to being a world class tennis player? Immediately, right?

If we were to strip a self-made multi-millionaire of all of the assets that she spent the past 35 years of her life earning and compounding, would it take her another 35 years to get back to the same level? Or would the value that remains within allow her to earn it all back and then some in a fifth or a tenth of the time? I would think it would take her less than a few years to become a multi-millionaire again, because her actual value would allow her to do so.

If we were to be caught in a terrible house fire and left with nothing but a badly burned body, who among those in our current circle of life do we know with conviction would still deeply love us and do all they could to support our recovery? How much lasting value have we created in the bonds we share with others?

With our everyday choices, are we increasing or decreasing our value? Are we compounding positive or negative returns?